One of the most common questions that is asked by sweepstakes and gaming adjacent businesses is that which payment processor will approve my business. The truth is that the approval rarely depends on finding the right payment gateway. But in reality, it most of the times depends on whether your business meets the underwriting standards of the acquiring banks and the payment service providers. Many merchants, they assume that if Stripe or PayPal or any other payment processor has declined their application, then they simply need to find another processor. However, in reality, the underlying reason for decline often follows them from provider to provider.
We will now try to explain why sweepstakes businesses are considered high risk, and what payment providers evaluate during underwriting of such merchants, and how merchants can improve their chances of getting a stable merchant account. Let us first understand why sweepstake businesses are considered high risk. Most of the payment processors, they evaluate the risk from the perspective of banks and card networks.
Sweepstakes businesses, they often present various characteristics such as regulatory complexity across different jurisdictions, higher than average dispute potential, customer misunderstanding of promotional mechanics, fraud and identity verification concerns, prize fulfillment obligations, and also increased compliance requirements.
Not every sweepstake business carries the same kind of risk, but they generally receive greater scrutiny than traditional e-commerce businesses. It is important for merchants to understand that it is not the gateway, but it is the underwriting. Many merchants, they focus on gateways such as Stripe or PayPal. However, gateways simply facilitate payment acceptance. The real approval decision is primarily made by the acquiring bank during a comprehensive underwriting process.
Typical underwriting questions for such merchants include, what exactly does the business sell? Is the sweepstake legally structured? Which states are served? Is a legal opinion available with the merchant? What is the customer payment flow? How are the prizes awarded? What is the expected monthly processing volume of the merchant? What is the average transaction amount? And what are the anticipated refund and chargeback rates? The answer to these questions can significantly determine the approval of the gateway and the merchant account.
There are certain documents that can be requested by the payment processor. The most common documents that are requested by the payment processor and the acquiring bank include the certificate of incorporation, EIN or tax ID, government issued identification, bank statement, processing history, website terms of service, privacy policy, refund policy, AML KYC procedure, legal opinion letter for sweepstake compliance, marketing materials, and financial projections. Having all these documents prepared in advance can significantly help merchants in easily clearing the underwriting process.
Now let us quickly understand that why some of the merchants are declined. The most common reasons include unclear business model, unsupported jurisdiction, insufficient website disclosure, poor customer support information, high projected chargeback risks, lack of processing history, regulatory uncertainty, and incomplete compliance documentation. All of these issues can be addressed before the merchants make any application to the payment service provider.
Merchants must know that changing processor without addressing the underlying underwriting concerns rarely solves the problems. Most of the payment service providers, they evaluate similar risk factors. So the same weakness may lead to repeated declines even if you try with multiple processors. Instead, what merchants should do is that they should identify why they are declined and they should try to strengthen their application before reapplying with another processor.
Rather than asking who accepts sweepstake businesses, merchants should ask that does the payment provider understand my business model? Do they have an acquiring bank that supports this kind of vertical? What kind of documents are required? Which payment methods are supported by the payment service provider? Can this scale as my business grow? And how do they manage chargeback and fraud? Do they offer some kind of chargeback management or chargeback defense service? All of these questions usually help to lead to a much more stable payment solution.
Finally, I would like to say that there is no universal payment processor that approves every sweepstake business. The approvals totally depend on the strength of your business, compliance, documentation, and the acquiring bank’s risk appetite. The businesses that succeeds are not necessarily those that find a processor willing to take a chance, but are the ones that present a very transparent, totally well-documented operations that fits the underwriting requirements of the payment processor from the beginning.